It’s possible that the game has been changed for the better, for Canadian retirees. Purpose Investments has launched a retirement funding mutual fund that is designed to deliver an annual payout at 6.15% annual. That is, the fund would pay out a minimum of 6.15% of your initial total fund value. For every $100,000 that you have invested, you would receive an annual payment $6,150.00. Introducing the Purpose Longevity® Pension Fund.
The Purpose Longevity Pension Fund offers the pension model, now available to the typical investor. Advisors will also be able to use the fund and will collect a modest trailing commission. For many Canadian retirees it will certainly be a game changer.
Income for life.
One of the greatest fears for retirees is running out of money. And most retirees don’t want to manage their own investments. They want to enjoy life, without financial worry. The Purpose Longevity Pension Fund will allow Canadians to top up their Canada Pension Plan and Old Age Security payments. Retirees may have other private pensions and other assets within the mix. The fund will allow a retiree to pensionize a large percentage of their liquid assets. The approach would remove much of the stock and bond market (volatility) risk.
And more importantly perhaps, it would remove the risk of investors messing up their retirement portfolio (and retirement funding) by way of bad behaviour.
Related post: Pensionize your nest egg with annuities: your super bonds.
The Purpose fund sits between the Vanguard VRIF ETF retirement funding solution and the traditional annuities. The Vanguard ETF is designed to pay out at a 4% rate of the portfolio value, adjusted each year.
An annual 6.15% payment (at age 65) is a big step up the retirement funding ladder.
When a retiree manages their own investment portfolio they will often use the 4% rule as a benchmark for the level that the portfolio can safely deliver retirement income, including an annual inflation adjustment. On Boomer and Echo I had offered …
The 4% rule. Is there a new normal for Canadian Retirees?
Everything changes in the decumulation stage.
Life changes and priorities change when we switch to the retirement or decumulation stage. Retirees just want to get paid.

Canadian retirees are not necessarily well served by the financial institutions in the retirement stage.

The pension model for the masses.
How does a fund pay out at a 6.15% rate (and potentially to increase) while studies show that a balanced or conservative investment mix can only ‘safely’ pay out at a 4%-4.5% level? Once again it follows the model used by pension funds (public and private) around the world.
I asked Som Seif, CEO of Purpose Investments to deliver an explanation.
It is based on what they call Longevity Risk Pooling. The difference between the required return on the fund (net 3.5%) and the income paid to investors (6.15%+) is because when people buy, they get their income, but as some people redeem/pass away earlier, they leave behind in the pool their returns on their invested capital (ie they get their unpaid capital out upon death or redemption). These returns left behind reduce the total return required to provide the income stream for all investors.
Som Seif
It is the pooling of funds by the collective group of investors that will hold the fund, that delivers the secret sauce. There is retirement funding strength in numbers.
This is called Longevity Risk Pooling (or sharing).
And as per the above quote, the underlying fund holdings only have to deliver at an annual 3.5% rate of return for the Purpose Longevity Pension Fund to deliver on the 6.15% funding level. Here’s ‘the how’ …
If you put in $500,000. After a number of years you receive distributions of $200,000, but then you pass away. Your estate would receive the unpaid capital of $300,000 ($500k-$200k). The return on the invested capital would stay in the pool for the benefit of all of the investors remaining. This return would reduce the overall required return for everyone.
Som Seif
The approach has been back tested.
Morneau Shepell conducted extreme stress testing on the model, which included the use of their economic scenario generator (ESG) that produced over 2,000 different simulations of future paths of economies and financial markets.
Probability of success (i.e. not having to decrease the income payout):
- Over a 25 year period: 91%
- Over a 35 year period: 86%
Purpose Investments can reduce income levels to ensure that the assets are never depleted and that income payments can continue to unitholders for their lifetime.
Net, net, the payments could move higher or lower. The risk will be managed, while any benefits offered by the markets will be passed along to investors.
The fund series.
There will also be a D-series available for self-directed investors.

The game changers combo offering.
On MoneySense and when we put together the Best ETFs in Canada, we often refer to the one ticket asset allocation ETFs as game changers. For use in the accumulation stage (wealth building) Canadian investors can hold comprehensive all-in-one portfolio ETFs with fees in the range of 0.20%.
And now enter the Purpose Longevity Pension Fund that might turn out to be the next piece in the game changing investment landscape.
- Accumulation: one ticket
- Decumulation: personal pension mutual fund
I’ll continue to do more research and I’ll add to this post. And I would invite reader questions. What do you want to know about this new offering?
I’ll get you the answers and I’ll add the responses to this post.
Thanks for reading. We’ll see you in the comment section.
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What is tax treatment if non-registered funds are used? Appears payments are a return of capital until balance reaches zero, then “income” would be triggered? My first reaction is this seems to be very similar to an annuity with the (big) difference being that capital is accessible and guaranteed(??? what happens IF there’s a severe downturn), but more subtely (and unlikely) there is technically NO guarantee of any return, unlike the paltry, but certain return for an annuity – both situations assuming longevity? Of course expectations are it maintains the return as the back tests show – understood : risk –> return++. If all goes according to plan and one has an extended life span, the reward is a higher payout than an annuity would have provided in your later years. Interestingly, the biggest benefit over an annuity appears to be if you expire early !!
I can earn over 6% with Enbridge and have a pretty safe dividend plus dividend increase s. Also I was lucky to buy the banks at their lows like Bmo Bns and Cm also averaging 6%. I had excellent growth and I do know the risks of market corrections etc. But I like the fact of annual dividend increases. I will let the kids worry how much principal is is left in my estate. BLUE CHIP DIVIDEND STOCKS IS THE WAY TO GO FOR ME.
That’s great Monte, I am a fan of blue chip dividend investing as you may know.
The addition of the Purpose fund to a mix would increase probabilities of long term success, but it is an individual choice. It’s certainly not an all or nothing decision. I will consider the Purpose fund when the time comes. It might be a great way to boost the estate if anything, in addition to lessening the risks in retirement.
Dale
“If it sounds to good to be true, it probably is”
Most assuredly, I don’t need to pay Som Seif 0.6% to 1.1% of my stash, to do something I can do via TDDI with a with a couple of clicks of the mouse, for under 0.2% plus a couple of $9.95 commissions a year. The difference looks better in my jeans than it does in his.
The funds does many things that you and I cannot do. But again, to each his or her own.
We’ll be watching and reporting.
Dale
Reducing the initial investment by the amount paid out is simply paying you your own money. I think there are several alternatives that are much better. Investing in MIC’s, stable dividend stocks, BTSX strategy, may have a slightly lower return but overall would retain much more of your capital.
If you think about private pension plans, IE company and/or union and they accumulate contributions over the working lives of all the participants, how do so many of them fail to meet adequate funding requirements?
The above fund returns the core principle investment to the estate and keeps the “shared” returns of that principle to benefit the pool.
I my private pension, when I die all of my contributions and future returns on that principle stay in the plan. My estate gets nothing back. I have been lucky and have not seen any benefit reductions, even a few modest increases. This mutual funds seems too good to be true. The proof will be seen during the next long term correction. Will fund managers be able to continue the 6% return? Eric
Thanks Eric, the fund may have to adjust if we hit a very rough patch. The prospectus states it will use those guardrails to ensure the long term sustainability. There are no guarantees of a 6.15% payment level.
I will get more details on the types of events that would cause a decrease in payments, and the level market disruption that would lead to any decrease(s).
Dale
Have look at the comments that follow Rob Carrick’s piece on this new offering. Not good, not good at all.
I can’t access those comments. Care to share what the complaints are? Thanks.
Can you provide a link?
We will listen to commenters over the actual fund and approach and strategy, instead of and above doing additional research?
Dale
Hi Dale,
I’d be interested to know how the payments would be taxed?
Thanks,
Doug
Quite favourably, so it appears. I will get more details on that.
Dale
Paywall article. What is the downside versus an annuity, for those wanting to diversify?
The comments section to Rob’s article are absolutely scathing, I’m not convinced it’s great, but I’m also not sure it’s a ponzie scheme either as some are suggesting, I’m guessing complexity/newness is confusing people. The fine print will be telling is my guess, I’m glad I don’t need this sort of product for several years, so maybe the dust can settle.
Ya the comment section or Rob’s article is ridiculous. I’ll get the answers to serious questions from Cut The Crap Investing readers.
I guess the CPP is a Ponzi scheme as well, ha. 🙂
I would consider the Purpose fund for a portion of assets when the time comes. But we do have time to watch and learn.
Dale
Given that you have no guarantees and when you pass you lose any gains the money has made over your time in the program, I’ll pass. I can give myself my own money every month for a lot less.
I would rather just continue to hold what I have now and continue to collect the rising income.
For those looking for a link to Rob Carrick’s article, here it is. It may be behind a paywall.
https://www.theglobeandmail.com/investing/personal-finance/retirement/article-never-had-a-pension-at-work-this-money-for-life-product-offers-615-per/
Thanks Rick, it’s not for everyone.
There are no guarantees with our own portfolios as well. The Purpose fund will be much more conservative and will have much more balance compared to a typical investor.
This will be interesting to watch, and report on.
Dale
Brilliant! This hybrid approach is definitely game changing. Reminds me of how WealthSimple changed the game and caused ripples in the traditional sense of the industry.
If embraced by Canadians it certainly could be a game changer.
Dale
This article is very similar to Rob Varick on the Globe and Mail website. They both sound like a sales pitch. I’m am disappointed because this is crap and it’s not being cut. Cut the Crap investing, please!
Oh come on, I was selling way harder than Rob. And receiving much less (no) pay, ha.
To each his or her own. Don’t do the research then.
I’ll keep digging and answering questions for readers.
Thanks for stopping by, I appreciate your opinion as well.
Dale
Hey Dale, thanks for sharing, think this sounds very promising. Do you know the difference between the A and F classes? They have different management fees and payout targets but I’d love to know context. Thanks!
This is interesting. It’s basically a tontine, except your estate can get some capital back if you die early. I have some of the same questions as others:
1) It looks like early distributions are basically 100% return of capital and so should be very efficient? Later years would be a mix based on the returns of the fund?
2) Doesn’t look like payments escalate with inflation. So at some point in your 80s this will cross over with 4%+inflation model.
Thanks Gregg, I will be following up with another post. Payments are modelled to increase substantially in later years for those with longevity, and who access the mortality credits.
And yes annuity-like return of capital is in the mix. Underlying returns of assets will determine that level. To reach goals, the fund only needs 3.5% annual return average.
Thanks for stopping by,
Dale
Can this be used in a RIF
Yes indeed.
Dale
Man, oh man, I get the sense that people are crapping on this without even beginning to try to understand it. It’s like folks are complaining that fire insurance is a scam because you only get paid if your house burns down!
There aren’t many places that you can lay off longevity risk; another way of saying that is where you can buy protection for the risk that you live a long time. Annuities are one, but they are almost entirely keyed off bond yields, and you lose out on any equity premium. There are (I think) some equity linked annuities. I’m not sure how great those products are.
Here, if you die earlier than average, you get all of your money back, but no gains. If you die later than average, you get your money, plus your gains, plus a share of the gains of the poor schmucks who died early. That may not be a great deal, but it at least has the possibility of being a pretty good deal and one that you want to mix into your portfolio. Of course, if you have buckets of money and the only problem that living too long will produce is that the kids won’t get as much, well then, maybe you have no need for this product.
Sorry, I will add, Rob’s article in the Globe and Mail did sound an awful lot like it had been lifted 85%+ from the fund’s marketing materials.
100k invested at 2.0% for 15 years (compounded monthly) yields 34,952.18 in interest. And I still have my capital. No thanks Purpose! Canadian banks have been a great (and pretty safe) source of capital appreciation over the years, although I would wait for the ‘ski-hill’ values to drop 10% or more before investing right now. (June 2021).
https://www.getsmarteraboutmoney.ca/calculators/compound-interest-calculator/
I like the concept but I see a problem for couples. Based on $100,000 investment all capital will be returned in approx 15 yrs. If each person has an account and one dies the survivor has a large reduction of income, especially if consider the additional loss of OAS and some if not all of CPP. If money had been invested in annuity it can be structured so that there is no reduction in income except for OAS and CPP of deceased person. Would be nice if there was an option for couples. For single person this appears to be a great way to probably secure income for life.
Hello,
I am wondering if anyone has thought about how this could be built by a determined DIY investor with a diversified portfolio, return of capital, etc. for a period until an Advanced Life Deferred Annuity (ALDA) kicks in?
Or does someone have other suggestions for generic components that a person could to use if they were thinking about trying to replicate this fund?
It seems like a DIY approach would help the couple problem if the ALDA was joint-life.
Any thoughts?
Hi Peter it would be impossible to replicate as the magic eventually, is in the mortality credits. And the idea is that one would certainly use this Purpose Fund in concert with other holdings, a core balanced portfolio and cash perhaps. The sweet spot for the Longevity Fund might be in the 40% area for many. I am working on a post on that topic – how to put the fund to use.
Thanks for stopping by.
Dale
Dale,
The ALDA provides the “magic” as you say. Using a 100K capital example for a 65 year old couple.
Imagine taking 15 to 20% of the capital for example to buy the ALDA for payment starting at 85. Use the other 80 to 85% or so of the capital in an asset mix similar the Purpose product with returns at Net 3.5% using lower fee products than 0.60% and run the withdrawals at 6,150 a year. I would run 4% return using 0.10% MER low fee ETFs for the same investment mix/risk. Capital vanishes in 20 or so years around the time the ALDA kicks in… So if 15 to 20% of your capital can buy the ALDA (and you should get a lot of longevity/mortality credits) with a good payout for the rest of your hopefully long and happy life, haven’t you got a basic replication of the Purpose product?
Just need to find some prices for 20 year deferred joint life annuities and then work the example . However real Annuity pricing seems to be hard to access for DIY planners/investors. Maybe someone in the industry can help.
But what do you or your readers think is wrong with my rough form hypothesis?
That’s wonderful Peter. I will investigate some more and ask for input from some experts in the area.
Dale
The reason that it is difficult to find deferred annuities at retirement age is that the tax code requires income from registered plans to start no later than the end of the calendar year in which the account-owner turns 71. (Most Canadians save in registered plans.) This is the problem ALDAs are designed to fix! And implementing ALDAs requires amending the Income Tax Act. The ITA was amended by legislation that was passed at the end of June (see https://www.advisor.ca/tax/tax-news/liberals-budget-bill-adopted-bringing-changes-to-stock-options-annuities-ipps/?#039;sedge), but we haven’t seen ALDAs enter the marketplace yet. Once ALDAs are available for purchase, we’ll have lots more information on pricing, and Canadians can develop strategies that take ALDAs into account. 🙂
Dale,
Thanks very much for the feedback. I enjoy this blog and the quality of the discourse.
Alexandra,
Your work with Moshe Milevsky has really influenced my thinking through your books and technical papers on this topic over the years. Much appreciated! 🙂
Hi!
Stumbled across this 2-year old thread and was hoping I’d see some new info or a blog update on the fund?
I’m quite a way from retirement but might be interested in this when the time comes.
TIA for a followup Dale!
I will do an update on the Fund, thanks for the suggestion and for stopping by.
Would be great to see an update